2020: Why isn't Berkshire using its huge cash position to buy?

BECKY QUICK: Okay. Thank you. The next question comes from Robert Tomas from Toronto, Canada, and he says, “Warren, why are you recommending listeners to buy now, yet you’re not comfortable buying now as evidenced by your huge cash position?”

WARREN BUFFETT: Well, A, as I explained, the position isn’t that huge. When I look at worst case possibilities, I would say that there are things that I think are quite improbable. And I hope they don’t happen, but that doesn’t mean they won’t happen. I mean, for example, in our insurance business, we could have the world’s, or the country’s, number one hurricane that it’s ever had, but that doesn’t preclude the fact that could have the biggest earthquake a month later. So we don’t prepare ourselves for a single problem. We prepare ourselves for problems that sometimes create their own momentum. I mean 2008 and 9, you didn’t see all the problems the first day, when what really kicked it off was when the Freddie and Fannie, the GSEs went into conservatorship in early September. And then when money market funds broke the buck… There are things to trip other things, and we take a very much a worst case scenario into mind that probably is a considerably worse case than most people do.

So I don’t look at as huge, and I’m not recommending that people buy stocks today or tomorrow or next week or next month. I think it all depends on your circumstances, but you shouldn’t buy stocks unless you expect, in my view, you expect to hold them for a very extended period and you are prepared financially and psychologically to hold them, the same way you would hold a farm and never look at a quote and never pay… You don’t need to pay attention to them. I mean, the main thing to do… And you’re not going to pick the bottom, and nobody else can pick it for you or anything of the sort. You’ve got to be prepared when you buy a stock to have it go down 50% or more and be comfortable with it, as long as you’re comfortable with the holding.

And I pointed out, I think a year, maybe two years ago on the annual report… Just the one before this most recent one, I pointed out that there had been three times in Berkshire’s history when the price of Berkshire stock went down 50%. Three different times. Now if you hold it on borrowed money, you could have been cleaned out. There wasn’t anything wrong with Berkshire when those three times occurred. But if you’re going to look at the price of the stock and think that you have to act because it’s doing this or that, or somebody else tells you, “How can you stay with that,” when something else is going up or anything. You’ve got to be in the right psychological position. And frankly, some people are not really careful. Some people are more subject to fear than others.

It’s like the virus. It strikes some people with a much greater ferocity than others. And fear is something I really never felt financially, but I don’t think Charlie’s felt it either. But some people can handle it psychologically. If they can’t handle it psychologically, then you really shouldn’t own stocks, because you’re going to buy and sell them at the wrong time. And you should not count on somebody else telling you this. You should do something you understand yourself. If you don’t understand it yourself, you’re going to be affected by the next person you talk to. And so you should be in a position to hold, and I don’t know whether today is a great day to buy stocks. I know it will work out over 20 or 30 years. I don’t know whether it’ll work out over two years at all. I have no idea whether you’ll be ahead or behind on a stock you buy on Monday morning, or the market.